Correlation Between Prospect Capital and Trinity Capital

Can any of the company-specific risk be diversified away by investing in both Prospect Capital and Trinity Capital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Prospect Capital and Trinity Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prospect Capital and Trinity Capital, you can compare the effects of market volatilities on Prospect Capital and Trinity Capital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Prospect Capital with a short position of Trinity Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prospect Capital and Trinity Capital.

Diversification Opportunities for Prospect Capital and Trinity Capital

0.59

Correlation Coefficient

Prospect Capital  Trinity Capital

Very weak diversification

The 3 months correlation between Prospect and Trinity is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Trinity Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trinity Capital and Prospect Capital is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Prospect Capital are associated (or correlated) with Trinity Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trinity Capital has no effect on the direction of Prospect Capital i.e., Prospect Capital and Trinity Capital go up and down completely randomly.

Pair Corralation between Prospect Capital and Trinity Capital

Given the investment horizon of 90 days Prospect Capital is expected to generate 215.0 times less return on investment than Trinity Capital. But when comparing it to its historical volatility, Prospect Capital is 1.3 times less risky than Trinity Capital. It trades about 0.0 of its potential returns per unit of risk. Trinity Capital is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,430  in Trinity Capital on December 30, 2024 and sell it today you would earn a total of  153.00  from holding Trinity Capital or generate 10.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Prospect Capital  vs.  Trinity Capital

Prospect Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Prospect Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Trinity Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Capital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Trinity Capital may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Prospect Capital and Trinity Capital

The main advantage of trading using opposite Prospect Capital and Trinity Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prospect Capital position performs unexpectedly, Trinity Capital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Trinity Capital will offset losses from the drop in Trinity Capital's long position.

The idea behind Prospect Capital and Trinity Capital pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.